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![[Title to come]
[Sub-Title to come]
Strictly for Intended Recipients Only
Date
* DSP India Fund is the Company incorporated in Mauritius, under which ILSF is the corresponding share class
| People | Processes | Performance |
DSP Mid Cap Fund
Mid Cap Fund - An open ended equity scheme predominantly investing in mid cap stocks
#INVESTFORGOOD
Mar 2023](https://image.slidesharecdn.com/dspmidcapfund-mar2023-230726170231-99f58941/85/DSP-Midcap-Fund-1-320.jpg)
![• We analysed data from Indian Large cap, Mid cap and Small cap companies over the past decade to understand
their return potential
• Historically in the Indian markets, a combination of healthy ROE and high earnings growth has resulted in superior
price performance
14
Why we select companies with High ROE and Earnings growth
Strictly For Use By Intended Recipients Only
Source: Elara Capital, [MOSL Wealth Creation Studies in India]; * companies with an average 10Y RoE > = 16%, used so as to categorize companies
within Small Caps; Constituents of Nifty 500 Index as on 31 July 2022 are back tested from the peak of 2008. All returns in INR terms. To understand the
table better, we take an example of the third row. We considered all the stocks in the Nifty 500 index, and classified them as Small Cap, Mid Cap and
Large Cap based on MSCI definition – please see Appendix. Over the period Jan 2008 market peak to November 2021, we found that 28 companies
grew from being Small Caps to Large & Mid Caps, with an average price appreciation of 25.0%, Profit pool increase of 15.6% and an average RoE of
22.6%. %.. Past performance is not a reliable indicator of future results
Large & Mid Cap SmallCap
No of
stocks
moved
Profit pool
increase (%
CAGR)
11.5%
15.6%
11.4%
Average
ROE
18.0%
22.6%
21.5%
6.7%
6.0%
Market cap classification
(as on 31 July 2022)
L&M
C
L&M
C
SC
SC
SC
Market cap classification
(as on Jan 2008)
L&M
C
L&M
C
SC
SC
SC
No of stocks
moved
53
28
139*
119
38 NEGATIVE
8.5%
There is a sizable pool of high-quality companies that have the potential to provide superior returns
Elimination
is
Key
10.5%
25.0%
17.5%
8.0%
-0.8%
Average
price
appreciation
Market peak
before GFC](https://image.slidesharecdn.com/dspmidcapfund-mar2023-230726170231-99f58941/85/DSP-Midcap-Fund-14-320.jpg)
More Related Content
DSP Midcap Fund
- 1. [Title to come] [Sub-Titleto come] Strictly for Intended Recipients Only Date * DSP India Fund is the Company incorporated in Mauritius, under which ILSF is the corresponding share class | People | Processes | Performance | DSP Mid Cap Fund Mid Cap Fund - An open ended equity scheme predominantly investing in mid cap stocks #INVESTFORGOOD Mar 2023
- 2. For Professional Investoruse only 13 Market Overview
- 3. Global Macros –Interest Rate regime change 3 Source: Internal, Bloomberg. Data till Dec 2022 Interest rates – unpredictable but likely to remain higher than last decade – repercussion on growth & asset valuation. -2 0 2 4 6 8 10 12 14 16 18 20 US Recession Indicator US CPI Inflation (yoy, %) US Interest Rate (Fed Funds Rate, %)
- 4. Global Macro -Recession & Equities 4 Source: Internal, Bloomberg. Data till Dec 2022 • Markets bottoms in midst of recession. • Cheap money chasing all asset classes (loss making companies, startups, crypto) - This could change in future. 0 2 4 6 8 10 12 14 16 18 500 US Recession Indicartor Dow Jones Industrial Average (LHS, Log scale) US Treasury 2 Yr Bond Yield (RHS, %)
- 5. 5 Indian Corporates -Operating metrics for 1H23 ROEs currently lower than its peak in FY22. Except for metals and healthcare, ROE in most industries lower than pre pandemic EBITDA margins are currently trending below FY19 levels for most sectors. The overall net debt increased by 42% from FY19, and the net debt-to-equity ratio also deteriorated. Overall debt servicing capacity, represented by net debt to EBITDA, remained robust. Working capital cycles have been extended and capex has increased sharply impacting the free cashflow generation. The analysis has been done of NSE-500 universe and data is sourced from Capitaline. ROE- Return on Equity. The sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of the same and may or may not have any future position in these sector(s)/stock(s)/issuer(s). Sector Revenue CAGR (FY19-23) EBITDA Margins Net Debt to Equity ROE FY19 FY23 Chg FY19 FY23 Chg FY19 FY23 Chg IT 11% 21% 20% -1% -37 -26 11 25% 26% 1% Energy 10% 11% 8% -3% 47 42 -4 14% 11% -3% Energy (ex RIL) 10% 10% 6% -4% 45 64 20 18% 15% -3% Staples 14% 20% 16% -3% -10 -8 2 24% 20% -4% Staple (ex ITC) 16% 18% 16% -2% 6 -2 -8 30% 20% -9% Comm Services 10% 23% 41% 19% 137 871 734 -5% -11% -6% Materials 14% 17% 17% -1% 65 45 -19 11% 17% 6% Cons Dis 5% 8% 10% 2% 44 60 16 5% 11% 6% Cons Dis (ex TTMT) 7% 14% 12% -2% 34 38 4 19% 15% -4% Industrials 9% 14% 11% -2% 58 51 -8 14% 12% -2% Utilities 13% 26% 25% -1% 125 119 -5 12% 14% 2% Health Care 9% 18% 17% -1% 16 -0 -16 11% 11% 0% Real Estate 3% 26% 21% -5% 50 29 -21 7% 7% 0% Overall 10% 14% 14% -1% 51 51 -0 13% 14% 1%
- 6. 6 Indian Corporates –Earnings that matters the MOST! Source: MOFSL. Data as of 30 Dec 2022. CAGR – Compounded annualized growth rate. FY Note: There is no guarantee of returns/income generation in the Scheme. Further, there is no assurance of any capital protection/capital guarantee to the investors in the Scheme. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. These figures pertain to performance of the index and do not in any manner indicate the returns/performance of the Scheme. It is not possible to invest directly in an index. Earnings growth can be volatile in short term 91 81 129 181 250 266 291 278 280 216 236 272 361 446 540 720 833 820 834 1024 1107 1178 1328 1360 1342 1358 1356 1486 1513 1702 2313 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY92-96 CAGR: EPS: 29% Index: -6% FY96-03 CAGR: EPS: 1% FY03-08 CAGR: EPS: 25% FY08-18 CAGR: EPS: 5% Index: 8% FY20-22: 24% FY93-FY20: 10.5% CAGR BSE Sensex Index v/s EPS Sensex CAGR (%) EPS CAGR (%) ~29 Yrs FY92 – Mar’22 9.1 11.4 2,550 60,841 0 15000 30000 45000 60000 75000 0 500 1,000 1,500 2,000 2,500 3,000 Jul-93 Sep-94 Nov-95 Jan-97 Mar-98 May-99 Jul-00 Sep-01 Nov-02 Jan-04 Mar-05 May-06 Jul-07 Sep-08 Nov-09 Jan-11 Mar-12 May-13 Jul-14 Sep-15 Nov-16 Jan-18 Mar-19 May-20 Jul-21 Sep-22 Sensex EPS (INR) Sensex Index (RHS) Sensex closely tracks earnings growth over longer term
- 7. 7 Can Indian Corporateachieve 12-13% earnings CAGR over a decade ? • Most factors are in FAVOR: ✓ Government’s pro growth stance (Spends on Railway, Roads, Defense, Renewables) ✓ Economic revival leading to private sector participation ✓ Focus on Manufacturing - 16% of GDP to 25% of GDP ✓ Banking balance sheets are very strong ✓ Demographic dividend – India only country with rising working age population ✓ Consumption to see recovery – bottom of pyramid UNPREDICTABLE but • Compared to factors AGAINST Cost of capital – Interest rates Speed of execution
- 8. 8 India Macro -Market valuation Source: Internal, Bloomberg. Data as on 31 Mar 2023 India Market cap/World Market Cap (%) Price to Earnings (Nifty) Price to Book (Nifty) Yield Gap: GSEC yield (-) Earnings Yield 20.6 - 5.0 10.0 15.0 20.0 25.0 30.0 35.0 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 3.0 2.6 1.5 2.0 2.5 3.0 3.5 4.0 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 2.9 1.5 2.5 3.5 4.5 5.5 6.5 7.5 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 (1.00) - 1.00 2.00 3.00 4.00 5.00 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 High Attractive Moderate Moderate
- 9. 9 India Macro -Small and Mid Cap Valuation Differential Strictly for Intended Recipients Only Nifty Mid Cap P/B / Nifty P/B (%) Nifty Small cap P/B / Nifty P/B (%) 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% May 12 May 13 May 14 May 15 May 16 May 17 May 18 May 19 May 20 May 21 May 22 0% 20% 40% 60% 80% 100% 120% Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Source: NSE. Data as on 31 Mar 2023
- 10. Our conclusions 10 India Macro– Summary ✓ Oil and other energy prices have corrected – Favorable impact on Raw material, inflation, Current Account Deficit ✓ Market valuations have become more reasonable ✓ Corporate margins to start improving over next 1 – 2 years Slowing consumption at bottom of pyramid ✓ Companies with sound visibility of profit & cash flow growth available at reasonable valuations (Strong Fundamentals) likely to outperform. ✓ We are positive on Banking, Auto, Healthcare sector
- 11. For Professional Investoruse only 13 How do we manage your fund?
- 12. 12 Where do weinvest - Market capitalization spectrum MID LARGE X is the Market Capitalisation Top 100 companies X > ~ Rs.49,000 Cr 251 & beyond ranked companies X < Rs. 16,800 Cr Top 101-250 companies ~ Rs. 49,000 Cr > X > ~Rs.16,800 Cr Large-caps are defined as top 100 stocks on market capitalization, mid-caps as 101-250 , small-caps as 251 and above. The strategy mentioned has been currently followed by the Scheme and the same may change in future depending on market conditions and other factors. Data as on 31 Dec 2022 based on AMFI classification SMALL
- 13. 13 Our Investment Philosophy OURAPPROACH Bottom Up Stock selection Business ownership mindset WE PREFER COMPANIES THAT HAVE Sell Discipline - Profitable positions where valuations rise to unsupportable levels, or Loss-making positions where investment thesis not unfolding as envisioned Incremental capital allocation in equivalent or better ROE businesses Large opportunity; scalable businesses Sustainable moats Quality of management – passion, leadership, capital allocation Superior ROEs (over long period) Source: Internal. The investment approach / framework/ strategy / portfolio / other data mentioned herein are dated and currently followed by the scheme and the same may change in future depending on market conditions and other factors.
- 14. • We analyseddata from Indian Large cap, Mid cap and Small cap companies over the past decade to understand their return potential • Historically in the Indian markets, a combination of healthy ROE and high earnings growth has resulted in superior price performance 14 Why we select companies with High ROE and Earnings growth Strictly For Use By Intended Recipients Only Source: Elara Capital, [MOSL Wealth Creation Studies in India]; * companies with an average 10Y RoE > = 16%, used so as to categorize companies within Small Caps; Constituents of Nifty 500 Index as on 31 July 2022 are back tested from the peak of 2008. All returns in INR terms. To understand the table better, we take an example of the third row. We considered all the stocks in the Nifty 500 index, and classified them as Small Cap, Mid Cap and Large Cap based on MSCI definition – please see Appendix. Over the period Jan 2008 market peak to November 2021, we found that 28 companies grew from being Small Caps to Large & Mid Caps, with an average price appreciation of 25.0%, Profit pool increase of 15.6% and an average RoE of 22.6%. %.. Past performance is not a reliable indicator of future results Large & Mid Cap SmallCap No of stocks moved Profit pool increase (% CAGR) 11.5% 15.6% 11.4% Average ROE 18.0% 22.6% 21.5% 6.7% 6.0% Market cap classification (as on 31 July 2022) L&M C L&M C SC SC SC Market cap classification (as on Jan 2008) L&M C L&M C SC SC SC No of stocks moved 53 28 139* 119 38 NEGATIVE 8.5% There is a sizable pool of high-quality companies that have the potential to provide superior returns Elimination is Key 10.5% 25.0% 17.5% 8.0% -0.8% Average price appreciation Market peak before GFC
- 15. 15 We Tend toAvoid Companies with Source: Internal. The investment approach / framework/ strategy / portfolio / other data mentioned herein are dated and currently followed by the scheme and the same may change in future depending on market conditions and other factors. “Rule number one: Don’t lose money. Rule number two: Don’t forget rule number one.”- Warren Buffet Corporate governance issues Capital misallocation High sensitivity to changing regulations Highly cyclical industry Red flags in related party transactions Complex organizational structure Did you know? DSP has Skeptical Analyst with focus on forensic research (First in Industry)
- 16. 16 What can generatealpha? – Our Edge Source: Internal; The sector(s)/stock(s)/issuer(s) mentioned in this note do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer. The investment approach / framework/ strategy / portfolio / other data mentioned herein are dated and currently followed by the scheme and the same may change in future depending on market conditions and other factors. # Potential alpha sources Taking advantage of DSP’s Primary Alpha Source? Comments 1 Research Non-consensus calls / early- movers Yes - Focus on RoE and Earnings Growth - Emphasize sustainable investing - Historical examples such as IPCA Labs, Symphony, SRF, Coromandel etc. 2 Behaviour Inherent human biases Yes - Conviction through diversified yet focused portfolio - Long-term investment horizon - Low turnover 3 News flow Information arbitrage No - We do not prioritize trading / short-term views 4 Technical Liquidity squeezes, sudden fund flows etc. No - We do not prioritize technical charts analysis and subsequent trading
- 17. 17 We look BeyondNumbers while analyzing companies The investment approach / framework/ strategy / portfolio / other data mentioned herein are dated and currently followed by the scheme and the same may change in future depending on market conditions and other factors. Longevity of any business is determined by the people running it & analyzing Management/People requires experience and learning curve. We consider below parameters for analyzing companies beyond numbers BEYOND NUMBERS Proven Track Record Stakeholder relationship Governance Standards Leadership Integrity & Passion Capital Allocation
- 18. 18 “Buy and hold”Approach • In stock market, money is made by investing in capital efficient businesses for long term. • Business Ownership Mindset results in “Buy and hold” approach for the fund Source: MFIE, Internal. Data as on 31 Mar 2023.The sector(s)/stock(s)/issuer(s) mentioned in this note do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer BUY & HOLD approach leading to lower portfolio turnover ratio vs Category Average – 54 Average - 30 0 10 20 30 40 50 60 70 80 90 100 2016 2017 2018 2019 2020 2021 2023 Portfolio Turnover ratio DSP Mid Cap Fund Category Median
- 19. For Professional Investoruse only 13 Portfolio Insights
- 20. 20 Large Part ofPortfolio consist of category leaders Some of these sectors are available only in Small / Mid Market Capitalization Company Segment / Sub-segment where company is leader Atul Largest in several speciality chemicals Chola investment Largest CV financier Supreme Industries Largest plastic pipes player Chambal Fertilizers Largest private sector Urea player Bata Largest Footwear company Crompton Consumer Market leader in electrical consumer Sheela Foam Largest Mattress & Foam manufacturer Coromandel International Largest Phosphatic player Phoenix mills Largest mall operator Tata Chemicals Largest Soda Ash & Salt manufacturer Jubilant Foods Largest QSR Player SRF Largest Refrigerant Gases, Specialty Chemicals, Nylon cord and Poly Films player Kajaria Largest Tiles manufacturer Polycab Largest cable player Container Corporation Largest container rail operator Source: Internal. Data as on 31 Mar 2023 .The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s).
- 21. 21 Portfolio Transition inlast 2 years * Materials include Agri, Speciality Chemicals, pipes, cement. @ Consumer Discretionary includes Auto, Auto Ancillaries, QSR, consumer durable ^Industrials include Defence, Capital goods, cable & wire Data as on 31 Mar -2023 Source: Internal. The investment approach / framework/ strategy / portfolio / other data mentioned herein are dated and currently followed by the scheme and the same may change in future depending on market conditions and other factors. The sector(s)/ stock(s)/ issuer(s) mentioned in this document do not constitute any research report/recommendation of the same and the scheme(s)/ Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). GICS Sector Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Materials* 17 18 19 20 21 25 23 24 22 21 Real Estate 1 1 1 2 2 2 3 3 4 4 Financials 21 22 20 21 20 19 18 17 16 16 Consumer Discretionary @ 19 19 20 19 18 19 20 20 21 19 Health Care 10 7 7 7 7 9 8 8 8 9 Consumer Staples 5 4 5 4 4 4 5 5 5 4 Industrials ^ 10 12 12 13 13 12 11 13 13 13 Information Technology 8 8 8 6 6 5 5 5 5 6 Utilities 3 3 3 3 3 3 2 2 2 2
- 22. 22 Portfolio change rationale •The sector would benefit from government’s focus on manufacturing and indigenization. • Stocks are not cheap hence we are not aggressive in building weights. Thermax, Hindustan Aeronautical & Dixon are the key names. Our view on what would drive alpha 1. In the long term, companies earnings growth over 15% and ROE upwards of 16%. 2. Margin of safety in valuation of good quality businesses which may be unpopular now but likely to outperform when they turnaround( e.g pharma, agri, gas utilities, etc.) This will require patience. 3. Sizing of companies in portfolio with sound near term outlook. Materials • Companies like Supreme Ind, Atul, Chambal, Coromandel represents large opportunity size and they have been investing in growth, which are likely to outperform in future. These companies are run quite efficiently with superior ROEs. • Companies like Atul may currently be facing demand issues due to global slowdown but the long term outlook remains positive. Consumer Discretionary • A BCG study has estimated that no of elite & affluent class of people in India to double to 8 crore which can increase market size of Auto/Auto-ancillary business exponentially • Businesses like Jubilant, Bata can have large runway for growth due to shift to organised sector, premiumising product with better pricing power. • Reduced exposure to consumer durable names like Voltas, Whirlpool etc. due to heightened competition which is hurting profitability. Industrials Source: Internal. Data as on 31 Mar 2023.The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). The investment approach / framework/ strategy / portfolio / other data mentioned herein are dated and currently followed by the scheme and the same may change in future depending on market conditions and other factors.
- 23. 23 Portfolio change rationale •Exits or trimming of exposure is mainly where there is low margin of safety due to excessive valuations like Mindtree, Siemens or where the thesis is not unfolding as envisaged like Manappuram, GSPL Healthcare • Pharmaceutical companies' domestic business has done well. • US market has dragged the performance due to pricing pressure which seems to have reached trough levels. This along with high Raw Material and other costs has affected the profits in last 3-4 quarters thereby creating a low base. • Normalisation of cost could drive sharp profit increases for the sector and stocks are building subdued growth outlook hence we are gradually increasing exposure as we find good margin of safety here. IPCA & Alkem are the key plays. Information Technology • Had reduced exposure to IT (Mindtree) at peak valuations. Now, as valuations have corrected significantly due to global risk of growth we are gradually building exposure. • While growth could slow, the margins seems to have stabilised as seen from 2QFY23 results trends. • Eclerx & Cyient – Both companies are trading at attractive valuations of sub 14X for ROEs over 17-18% Exits / trimming Source: Internal. Data as on 31 Mar 2023.The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). The investment approach / framework/ strategy / portfolio / other data mentioned herein are dated and currently followed by the scheme and the same may change in future depending on market conditions and other factors.
- 24. Portfolio matrix (Actualvs. Framework ) *Note: Above numbers are based on FY22 Financials and 31st March 2022 weight Metric – Non financial Threshold Rationale DSP Mid Cap Fund 3 Yr Avg ROE >16% Cushion over risk free rate 19% 5 Yr. Avg. EBITDA Growth >13% Growth > nominal GDP for outperformance 17% 5 Yr. Avg. PAT Growth 24% (EPS) Growth Variability <100% Stability of earnings helps in sizing. 48% Payout Ratio >15% Cash generation & rewarding shareholder = qualitative. 30% Net Debt/ EBITDA <3x Preference for low leverage 0.13 Free Cash Flow Yield Positive Explains quality of operating earnings especially in the context of working capital and capex. 1.4% Metric - Financial Threshold Rationale DSP Mid Cap Fund 3 Yr Avg ROE >16% Cushion over risk free rate 15% 5 Yr. Avg. PAT Growth >13% Growth > nominal GDP for outperformance 25% (EPS) Growth Variability <100% Stability of earnings helps in sizing. 34% Gross NPA/ Credit cost ( 3Yr Average) <4% Or <2% Indicator of underwriting strength 3.7%/1% Fund Manager adheres to the Framework with focus to Growth oriented & Quality companies Non Financial companies Financial companies Source – Internal. The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). The investment approach / framework/ strategy / portfolio / other data mentioned herein are dated and currently followed by the scheme and the same may change in future depending on market conditions and other factors.
- 25. 25 DSP Mid CapFund – Portfolio as on Mar 31, 2023 Source: Internal. The sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of the same and may or may not have any future position in these sector(s)/stock(s)/issuer(s). Large-caps are defined as top 100 stocks on market capitalization, mid-caps as 101-250 stocks, small-caps 251 stock onwards. TOP 20 HOLDINGS % OF NET ASSETS Alkem Laboratories Ltd. 4.1 The Supreme Industries Ltd. 4.0 The Phoenix Mills Ltd. 3.8 The Federal Bank Ltd. 3.5 Atul Ltd. 3.5 IPCA Laboratories Ltd. 3.4 Coromandel International Ltd. 3.2 Bharat Forge Ltd. 3.2 Polycab India Ltd. 3.0 Cholamandalam Investment & Finance Company Ltd. 2.7 Cyient Ltd. 2.7 Emami Ltd. 2.7 ICICI Bank Ltd. 2.6 J. K. Cement Ltd. 2.5 Tata Chemicals 2.4 Balkrishna Industries Ltd. 2.4 Jubilant Foodworks Ltd. 2.3 Bata India Ltd. 2.3 Manappuram Finance Ltd. 2.3 Chambal Fertilisers & Chemicals Ltd. 2.0 MARKET CAP NET ASSETS Large Cap 10% Mid Cap 68% Small Cap 18%
- 26. For Professional Investoruse only 13 Sector Overview
- 27. 27 Materials 100 111 132 138148 191 265 - 50 100 150 200 250 300 FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM Revenue ( Rebased to 100) CAGR- 18% 100 113 134 170 210 209 217 - 50 100 150 200 250 FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM EBITDA- (Rebased to 100) CAGR- 14% 14.8% 14.1% 14.5% 17.3% 20.2% 15.6% 12.1% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM Operating margins (%) 100 159 143 164 110 196 272 - 50 100 150 200 250 300 FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM Capex ( Rebased to 100) CAGR- 18% Source: Internal. The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). Notes: Weighted average data for portfolio companies: Coromandel, Atul, Chambal, Supreme Industries, JK Cement. EBITDA – Earning before Interest & Tax Strong capex improves visibility for revenue growth coupled with revival of subdued margins can lead to sector outperformance
- 28. 28 Materials- Continued 18 1918 22 24 21 18 - 5 10 15 20 25 30 FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM ROE (%) 2.1 1.9 1.8 1.2 -0.0 0.1 0.1 -0.5 - 0.5 1.0 1.5 2.0 2.5 FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM Net Debt to EBITDA (x) Source: Internal. The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). Notes: Weighted average data for portfolio companies: Coromandel, Atul, Chambal, Supreme Industries, JK Cement. ROE –Return on Equity. EBITDA – Earning before Interest & Tax Quality of ROE is decent with reduction in net debt
- 29. 29 Healthcare 100 108 126 146 162 183 195 - 50 100 150 200 250 FY17 FY18FY19 FY20 FY21 FY22 FY23- TTM Revenue ( Rebased to 100) CAGR- 12% 100 102 128 171 238 216 166 - 50 100 150 200 250 FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM EBITDA ( Rebased to 100) CAGR- 9% 16% 16% 18% 20% 25% 20% 14% 0% 5% 10% 15% 20% 25% 30% FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM Operating Margins (%) 0.3 0.5 0.3 0.4 -0.2 -0.2 -0.5 -0.6 -0.4 -0.2 - 0.2 0.4 0.6 FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM Net debt to EBITDA Source: Internal. The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). Notes: Weighted average data for portfolio companies: Alkem, Ipca, Alembic Pharma Revival of Operating Margins & EBITDA can be significant driver for healthcare sector
- 30. 30 Consumer Discretionary (Auto) 100 128 151 134126 178 224 - 50 100 150 200 250 FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM Revenues ( Rebased to 100) CAGR- 14% 100 125 142 100 101 144 160 - 20 40 60 80 100 120 140 160 180 FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM EBITDA- (Rebased to 100) CAGR- 8% 23.4% 22.5% 22.1% 18.0% 19.3% 19.3% 16.9% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM Operating margins (%) 22 24 22 15 12 16 16 - 5 10 15 20 25 30 FY17 FY18 FY19 FY20 FY21 FY22 FY23- TTM Pre tax ROCE (%) Source: Internal. The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). Expected cyclical recovery
- 31. 31 Auto: Volumes Bottomingout AUTO CYCLE: Worst downturn in last two decades over FY20/21; Recovery across segments in H1FY23 AUTO CYCLE: Better scale drove higher margins and ROCEs; Valuations are above historical range *Calculated for OEMs excluding Tata Motors; 2W: Two Wheeler, PV: Passenger Vehicles and CV: Commercial Vehicles Source: Industry Sources, Companies Source: Companies, Bloomberg Domestic volumes FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 H1FY23 FY17-22 (%) FY12-22 (%) (mn units) 2W 13.4 13.8 14.8 16.0 16.5 17.6 20.2 21.2 17.4 15.1 13.5 8.4 (5) 0 Growth (%) 16 3 7 8 3 7 15 5 (18) (13) (11) 28 PV 2.6 2.7 2.5 2.6 2.8 3.0 3.3 3.4 2.8 2.7 3.1 1.9 0 2 Growth (%) 4 2 (7) 4 7 9 8 3 (18) (2) 13 40 CV 0.8 0.8 0.6 0.6 0.7 0.7 0.9 1.0 0.7 0.6 0.7 0.5 0 (1) Growth (%) 19 (2) (20) (3) 11 4 20 18 (29) (21) 26 68 Tractors 0.5 0.5 0.6 0.6 0.5 0.6 0.7 0.8 0.7 0.9 0.8 0.5 8 5 Growth (%) 11 (2) 20 (13) (10) 18 22 10 (10) 27 (6) 11 GDP growth (%) 5 5 6 7 8 8 7 7 4 (7) 9 10 0 5 10 15 20 25 30 0 2 4 6 8 10 12 14 16 18 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 H1FY23 EBITDA margin (%) ROCE (%; RHS) EV/EBITDA (x; RHS) Source: Internal. The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s).
- 32. For Professional Investoruse only 13 Performance Insights
- 33. 33 Performance is cyclical Source:Internal. Data as on 31 Mar 2023. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. There is no assurance of any returns/capital protection/capital guarantee to the investors in the Scheme. For Performance in SEBI prescribed format refer Annexure -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 2009 2011 2012 2013 2015 2016 2017 2019 2020 2021 2023 3 year rolling alpha over category median Period of outperformance Period of Underperformance • Every fund’s performance is cyclical in nature & DSP Mid cap Fund’s is no different. • Fund’s “BUY & HOLD” philosophy had led to long period of underperformance in past as well which was followed by long period of outperformance (Refer graph). • Current underperformance can also be cyclical in nature which can recover over longer period Outperformance with category is cyclical; period of outperformance is usually followed by period of underperformance
- 34. 34 We have beenunderperforming -5% 4% 23% 9% 0% 11% 32% 12% 3% 13% 37% 12% 1 Year 2 Year 3 Year 5 Year Performance as of 31 Mar 2023 DSP Mid Cap Fund Category Median Nifty Midcap 150 TRI Last 2 years of underperformance have affected long term performance of the fund Source: MFIE. Data as on 31 Mar 2023. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. There is no assurance of any returns/capital protection/capital guarantee to the investors in the Scheme. For Performance in SEBI prescribed format refer Annexure
- 35. 35 Investment during underperformancecan be potential source of alpha • Historical data shows that periods of underperformance are followed by periods of outperformance. This is because of cyclicality of how markets favour one style over the other in the short term. • What doesn’t change is markets affinity to good businesses which exhibit long term steady growth in profits and cashflows. 3 year alpha vs Category average Average future 3 year alpha if invested during period of underperformance % times future 3 year alpha is positive 0 to -1% + 1.1% 80.3% -1 to -2% + 1.7% 95.5% -2 to -3% + 2.3% 100.0% <-3% + 2.7% 100.0% DSP Mid cap fund has underperformed category by ~9.3% on 3 year returns as on 31 Mar 2023. Current underperformance can be an opportunity for investors to add DSP Mid Cap Fund Source: Internal, MFIE. Data as on 31 Mar 2023. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. There is no assurance of any returns/capital protection/capital guarantee to the investors in the Scheme. For Performance in SEBI prescribed format refer Annexure
- 36. 36 Stocks that causedunderperformance in CY 2022 • Most companies which have hurt the fund’s performance have good long term track record of growth and management quality. We have added to few of them during underperformance. • Higher allocation to healthcare has not helped. • We have taken action where required – Ramco Cement, Manappuram, Zensar etc. Particulars % DSP Mid Cap Fund -5% Nifty Midcap 150 TRI 4% Alpha -9% STOCKS % Contributio n to alpha ROE * 5 YR Earning Growth Our actions Manappuram Finance Limited -0.9% 21% 12% Reduced IPCA Laboratories Limited -0.8% 16% 35% Hold Zensar Technologies Limited -0.7% 15% 12% Exit Jubilant Foodworks Limited -0.6% 22% 44% Increased Alembic Pharmaceuticals Limited -0.6% 22% 9% Increased Sheela Foam Ltd. -0.6% 19% 12% Hold Hatsun Agro Product Limited -0.5% 20% 13% Hold Max Financial Services Limited -0.5% 19% 18% Reduced Ramco Cements Limited -0.4% 13% 6% Exit Emami Limited -0.4% 20% 10% Increased Total -6.2% CY 2022 Performance Top 10 stocks dragging performance Significant contributor of benchmark which fund didn’t hold STOCKS DRAGGING PERFORMANCE % Contribution to alpha Our actions Adani Total Gas -2.4% Continue to avoid as stock don’t pass our framework Varun Beverages -0.9% Continue to avoid as stock don’t pass our framework Source: Internal. Data as on 31 Dec 2022. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. There is no assurance of any returns/capital protection/capital guarantee to the investors in the Scheme. For Performance in SEBI prescribed format refer Annexure. The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). * ROE – Return on Equity
- 37. 37 Investment team Vinit Sambre– Fund Manager • 21 years of investment experience across 4 major market cycles • Joined DSP in July 2007 as a Portfolio Analyst. • Previously worked with DSP Merrill Lynch as a part of its Global Private Client business as an Equity Strategist • Chartered Accountant from ICAI Charanjit Singh (12) AVP & Fund Manager, Capital Goods, Infra, Power Utilities, Consumer Durables TEAM SUPPORTING THE FUND MANAGER Experienced investment team with a wide coverage of Indian equity markets FUND MANAGERS* *Jay Kothari is Dedicated Fund Manager for overseas investments. Years in brackets ( ) is years of experience. Resham Jain – Co-Fund Manager • Joined DSPIM in March 2016 covering small and midcaps • Previously working as an analyst with Batlivala & Karani stock broking • M.Sc in Finance (ICFAI University), FRM (Cleared), CFP (Cleared) , CFA (US) Kaushal Maroo (11) AVP, Autos, Ancillaries, Cement Dhaval Gada (10) VP, Banking and Financial Services Aniket Pande (9) AVP, Tech, Telecom, FMCG Nilesh Aiya (12) AVP, Forensic Research Chirag Dagli (15) VP & Fund Manager, Healthcare Abhishek Singh (14) AVP, Portfolio Manager Bhavin Gandhi (15) AVP, Portfolio Manager Abhishek Ghosh – Co-Fund Manager • Joined DSPIM in September 2018 as midcap analyst • Experience in equity research in Oil and Gas and Capital goods sector • Master in Management Studies (MMS) from N L Dalmia Institute Atul Bhole (16) SVP, Portfolio Manager Chaitra Nayak (6) Senior Manager, ESG Analyst Rohit Singhania (21) Senior Vice President Co-Head – Equities Metals sector
- 38. 38 Annexure – Performancein SEBI Format (Growth Option) Fund Managers • Vinit Sambre – Managing since Jul 2012 • Resham Jain – Managing since Mar 2018 • Abhishek Ghosh – Managing since Sep 2022 • Jay Kothari – Managing since Mar 2018
- 39. 39 Annexure – Performanceof other schemes managed by same fund manager Data as on 31 Mar 2023. Regular plan, growth option considered. Past performance may or may not sustain in future and should not be used as a basis for comparison with other investments.
- 40. 40 Annexure – Performanceof other schemes managed by same fund manager Data as on 31 Mar 2023. Regular plan, growth option considered. Past performance may or may not sustain in future and should not be used as a basis for comparison with other investments. (Permitted Category FPI portfolios managed under a bilateral agreement under Regulation 24(b) and subject to applicable laws) Period Portfolio #1 Returns (%) Benchmark (MSCI India + India Small Cap Index 20:80 Net TR) Returns (%) Portfolio #2 Returns (%) Benchmark (MSCI India Net TR) Returns (%) 1 year 2.09% 1.87% 3.52% -1.26% 3 years -- -- NA NA 5 years -- -- NA NA Since Inception 4.99% 9.69% 0.04% -3.87% Date of Inception 15-Mar-21 15-Feb-22 1.Past performance may or may not be sustained in the future. 2.Above performance of permitted category FPI portfolio is not comparable with the performance of the scheme(s) of DSP Mutual Fund due to differing investment objective/s and fundamental differences in asset allocation, investment strategy and the regulatory environment. 3.The said disclosure is pursuant to SEBI Circular No. Cir/IMD/DF/F/2012 dated February 28, 2012 pertaining to Regulation 24(b) of SEBI (Mutual Funds) Regulations, 1996. FPI – Foreign Portfolio Investor. 4.Returns upto 1 year are absolute and >1 year are compounded annualised (CAGR). 5.If the base currency of the permitted cateogry FPI portfolio and respective benchmark is in the currency other than INR, then the base NAV is converted to INR (used for performance calculations) using USDINR closing rate sourced from Bloomberg INR Performance of Permitted Category FPI Portfolio/'s Managed by Vinit Sambre
- 41. 41 Annexure – Performanceof other schemes managed by same fund manager Data as on 31 Mar 2023. Regular plan, growth option considered. Past performance may or may not sustain in future and should not be used as a basis for comparison with other investments. All funds Managed by Resham Jain & Abhishek Ghosh
- 42. 42 Annexure – Performanceof other schemes managed by same fund manager Data as on 31 Mar 2023. Regular plan, growth option considered. Past performance may or may not sustain in future and should not be used as a basis for comparison with other investments.
- 43. Scheme Product Suitability Riskometer DSPMid Cap Fund Benchmark - Nifty MidCap 150 TRI DSP Mid Cap Fund (Mid Cap Fund-An open ended equity scheme predominantly investing in mid cap stocks) This Open ended equity scheme is suitable for investors who are seeking* Long-term capital growth Investment in equity and equity-related securities predominantly of midcap companies 43 Disclaimer This document is for information purposes only. In this material DSP Asset Managers Private Limited (the AMC) has used information that is publicly available, including information developed in-house. Information gathered and used in this material is believed to be from reliable sources. The statements contained herein may include statements of future expectations and other forward looking statements that are based on prevailing market conditions / various other factors and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. While utmost care has been exercised while preparing this document, the AMC nor any person connected does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient(s) before acting on any information herein should make his/their own investigation and seek appropriate professional advice. There is no assurance of any returns/capital protection/capital guarantee to the investors in any schemes of DSP Mutual Fund (‘Fund’). The portfolio of the scheme is subject to changes within the provisions of the Scheme Information document of the scheme. Past performance may or may not sustain in future and should not be used as a basis for comparison with other investments. The sector(s)/stock(s)/issuer(s) mentioned herein do not constitute any research report/recommendation of the same and the scheme/ Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). The strategy / investment approach / framework mentioned herein is currently followed by the scheme and the same may change in future depending on market conditions and other factors. All opinions, figures, charts/graphs and data included in this document are as on 31 Mar 2023 (unless otherwise mentioned) and are subject to change without notice. For scheme specific risk factors, Investment strategy & objective, asset allocation and more details, please read the Scheme Information Document, Statement of Additional Information and Key Information Memorandum of scheme available on ISC of AMC and also available on www.dspim.com. For Index disclaimer click here Large-caps are defined as top 100 stocks on market capitalization, mid-caps as 101-250 , small-caps as 251 and above. The strategy mentioned has been currently followed by the Scheme and the same may change in future depending on market conditions and other factors Mutual Fund investments are subject to market risks, read all scheme related documents carefully. *Investors should consult their financial advisors if in doubt about whether the Scheme is suitable for them.
- 44. For Professional Investoruse only 13 #INVESTFORGOOD